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Archived - Minimum Wages in canada : theory, evidence and policy

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Executive Summary

Canadian employment standards legislation generally covers most sectors of the economy. Most exclude some occupations or industries from part or all of the general legislation. An alternative to this legislative model is a set of standards designed to cover a particular industry. These standards do not represent levels of protection for workers than the general legislation.

A number of administrative issues arise from sectoral standards: the definition of a sector, the level of standards to be implemented, equity among workers, the process for determining the contents of a standard and enforcement.

During the 1930s, a number of Canadian provinces adopted “industrial standards” acts that provided for the terms of collective agreements negotiated with a number of employers in the same industry to be extended to non-union employers. These acts attempted to protect unionized workers from competition by lower-paid workers in the same industry and pre-dated comprehensive collective bargaining legislation. With the exception of Quebec, these laws have been repealed or fallen into disuse. The Quebec decree system still functions, but on a reduced scale from the 1990s, covering service industries that do no face competition from outside of the province. An effort to permit parties in British Columbia to justify differential standards for an industry or sector to an impartial tribunal failed. In that province, parties wishing exclusion from legislation petition the government which may or may not engage in consultation.

Sectoral councils have existed since the 1980s to coordinate human resource issues within an industry. While they started as bi-partite bodies, some non-union industries are represented by employer representatives only. These councils have been successful in their scope of activities, but informed observers point out that they are not a substitute for collective bargaining. If they were to engage in a form of collective bargaining to devise sectoral employment standards, issues of representation would arise, and they would have to revise their terms of reference dramatically.

The best example of sectoral standards in the U.S. is California, where a commission was empowered to investigate conditions of employment in an industry and issue a “wage order” setting out basic terms for that industry. In all 17 orders were in effect in 2004, when the commission was “defunded,” so that all such work stopped.

Industrial relations in Continental Europe are dominated by industry-wide or sectoral bargaining structures. Collective agreements can be extended, as they are in France, or simply dictate the terms of labour markets in their industries by their wide coverage. Australia has had a system of “awards” issued by industrial tribunals for over a century. Awards typically rely on collective bargaining for their terms as much as possible and then apply to an entire industry, thus establishing sectoral standards. The current Australian federal government is seeking to dismantle this system, in the face of vigorous protests.

Sectoral standards in Canada were a transition from employment standards to collective bargaining and have largely disappeared. In Europe, the US and Australia, these systems are under attack, but may survive, depending on the political dynamics of a jurisdiction. Perhaps the decline of collective bargaining will spark new interest in sectoral standards.

Introduction

As a policy instrument, minimum wage legislation is called upon to serve a variety of interrelated purposes, albeit often with contradictory objectives as well as ulterior motives different form those explicitly stated. The main purposes as espoused in the literature, and expanded upon subsequently, are:

Alleviate poverty
Reduce wage inequality
Put a floor below which transactions are not allowed to occur
Eliminate low-wage jobs and encourage movement up the value-added chain
Provide an incentive to leave income maintenance programs
Increase aggregate demand with associated multiplier effects
Help pay for rising tuition fees
Protect the unprotected who have little individual or collective bargaining power
Protect the protected by reducing low-wage competition
Reduce the need for unions, and
Provide a model for emulation by others.

Not surprisingly, when “burdened with so many tasks” and “serving so many masters” minimum wages tend to generate heated controversy. The controversy, however, tends to generate more “heat” than “light” and often clouds the policy discussion. The purpose of this paper is to try to generate some light on the issue, with particular attention paid to the role of minimum wages in the federal jurisdiction of Canada. The paper begins with a discussion of the rationales for minimum wage legislation. It then analyses the theoretically expected impact on a range of outcomes of policy interest. Potentially offsetting factors that could mitigate the adverse effects are then discussed. Methodologies for estimating the impact of minimum wages are outlined. With this background in place, the empirical evidence on the impacts is then documented. Canadian studies are given separate treatment both because they are obviously of most relevance to the policy debate in Canada, and because (for reasons discussed) Canada provides an excellent “laboratory” for estimating minimum wage impacts. Minimum wages in Canada are then described – how they vary and the characteristics of those covered. Aspects of the federal minimum wage are then discussed, with particular attention to the key policy issue of whether there should be a return to the pre 1996 situation where the federal minimum was set independently or a continuation of the current policy of having it set equal to the minimum wage in the provincial jurisdiction where the federally protected workers are employed.

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